Malta is nearly as affluent as its European neighbors. The economy is dependent on tourism, which accounts for 35% of GDP; there are about 1.2 million visitors a year. Manufacturing industry represents about 25% of GDP. The financial services industry is the nation’s fastest-growing sector, which will have accounted for 15% of GDP in 2 or 3 years’ time. GDP per head is about $25,100 (2010), roughly equivalent to Cyprus, and above those of the other new EU member states. GDP growth in 2010 was 3.2%.

In 2007, inflation stood at 2.6% and dropped to 1.3% in 2008. 2009 saw a sharp rise to 2.1% and dropped to 1.7% in 2010. The government deficit was running at less than 3% of GDP in 2006 and dropped to just over 2% in 2007. 2008 saw a doubling of the deficit to 4.5%, a drop to 3.7% was recorded in 2009. The figure for 2010 stood relatively unchanged at 3.6%.

Exports are rising, but with limited agricultural land and wholly lacking in energy resources, Malta inevitably imports a great deal. The new administration has continued with sound financial policies, and has begun liberalization and privatization of various parts of the economy in line with EU requirements.

With GDP below 75% of the Community average, the Commission said in 2006 that the entire territory of Malta will continue to be eligible for regional investment aid. For the period 2007-2013, Malta expects to receive EUR840 million regional aid to deliver growth and jobs.

The Central Bank of Malta used to apply exchange controls under the terms of the Exchange Control Act 1972. Current transactions were freed from exchange controls in 1994; capital controls were removed in 2004 as part of EU entry.

In May, 2005, Malta was accepted into the EU's ERMII (Exchange Rate Mechanism), setting the country on a path towards full adoption of the Euro as from January, 2008. The Council fixed the equivalent rate for the Maltese lira at 0.429300 for one euro. Interest rates used to be controlled in Malta, but were effectively liberalized in 1995 when the Central Bank increased the ceiling on lending rates to 10% above the discount rate. There remain some controls on interest rates on loans for the purchase of residential property.

In a 2008 report, the IMF statement said that the Maltese authorities must be recommended for the successful adoption of the euro on January 1, 2008, calling it "a crucial landmark in their growth-oriented reform agenda".

This agenda appropriately aims at leveraging Malta's strengths and income-generating potential through closer integration in the European and global economies, the IMF suggested.

The Maltese economy was buoyed by significant growth in the island’s financial services sector during 2009, which grew by 22% in 2009 despite the difficult situation in the sector internationally. In 2010, the financial services sector chalked up an even more impressive 30% in growth.

Malta Business Environment

Malta has an excellent business infrastructure with good telecommunications; thi s coupled with the widespread use of the English language and a reasonably open and efficient public administration makes the island a very convenient and effective business base. Valletta, the administrative capital, is also the chief business centre.

The government is vigorously attracting external investment, and foreigner s are permitted 100% ownership of enterprises in almost al l sectors. There are extensive investment incentive schemes. More than 200 foreign companies have set up manufacturing operations in Malta.

There are a number of local banks, but foreign banking activity was heavily controlled in Malta until quite recently. Business legislation has created special regimes for a variety of types of business, including shipping companies, mutual funds and banks. There is also legislation for Trusts modeled on English trust law, which was updated in 2004.

Taxation for entities is very light, and Malta is unusual among low-tax countries in having tax treaties with 58 other countries, including most OECD countries.

Malta Investments by Foreigners

The Maltese government actively promotes foreign investment, particularly into the high technology sector. The Industrial Development Act 1988 introduced incentives and benefits for foreign investors, which were administered by the then Malta Development Corporation. Some incentives were automatic, others were at the discretion of the Corporation. Incentives included tax holidays, exemption from withholding tax, accelerated capital allowances, export promotion allowances, subsidized factories, customs duty relief, training grants, reduced tax rates, soft loans, etc.

In April 2001, the government amended the Industrial Development Act to incorporate a new incentive package to boost existing and new investment, primarily in the manufacturing sector which employs over 30,000 people and which, together with tourism and the services sector, is a key element of Malta's economy.

The incentives on offer no longer depend on whether a company exports or not. They are meant to promote productivity growth regardless of where the product is sold. The new package contains not only new tax incentives, with reduced rates of corporate tax which start from 5 per cent and move up to 15 per cent over a 15-year period, but also investment tax credits, a value added incentive scheme, special provisions for small businesses, and other incentives related to training and job creation.

In January, 2004, the government launched Malta Enterprise, a new body tasked with attracting more foreign direct investment (FDI) to the island. The umbrella body's mission is to sustain Malta's competitiveness and to offer assistance to those seeking to invest in Malta. Malta Enterprise consists of separate units, the first of which is responsible for business development and includes attracting FDI, trade promotion, marketing strategies, knowledge management, and foreign offices. The second unit is primarily responsible for client relationship management, whilst the third deals with corporate services.

A Mediterranean hub with global connections and access to European, North African and Middle Eastern markets, Malta remains a relatively low-cost base offering the highest standards of service, security and trust. Since joining the European Union in 2004 and the Eurozone four years later, Malta has successfully placed itself on the map for investors wishing to set up their operations in Malta. Malta’s competitive positioning together with a politically stable environment, an English speaking workforce that is specialized and professional and a regulator that is firm yet flexible, practical and accessible make Malta a jurisdiction of choice for investors wishing to set up shop on the island. Malta is at the very front rank of world financial centres. In 2010 the World Economic Forum’s Global Competitiveness Index ranked Malta 11th out of 139 countries for its financial market development and 10th for the soundness of its banking system, three notches up from the previous year. Additionally, over 50,000 companies are registered in Malta, with around 3,000 incorporated in 2010.

Investing in China

On an international relations and social level, the positive relationship between Malta and China is reflected in the recent cooperation between the two countries in connection with the recent Libyan upheavals.

From a regulatory perspective, the Malta Financial Services Authority, which is Malta’s single regulator, and the China Banking Regulatory Commission and the China Securities Regulatory Commission signed bilateral memoranda of understanding with regards to banking and securities. The memorandum signed with the Securities Commission relates to the protection and promotion of the development of the securities markets by providing a framework for co-operation, increased mutual understanding and the exchange of information, to the extent permitted by the laws and regulations in force in Malta and in China. The other memorandum relates to the sharing of supervisory information and enhance cooperation in the area of banking supervision to the extent permitted by the laws and regulations in force in both countries.

In addition to the Memoranda, Malta and China have signed a revised Double Taxation Agreement in October 2010 which will replace the one ratified in 1993.

Malta as an Alternative to Chinese

Outbound Investment The Maltese fiscal regime, has been one of the main drivers in creating an attractive investment opportunity. Approved by both the European Commission and the OECD, said regime is giving Malta’s financial services its cutting edge advantage over competing locations and continues to be instrumental in the number of business and investment into the island. With no withholding taxes on dividends, interest or royalties embedded in our tax laws and the possibility of low tax rate has definitely contributed to Malta’s success in being considered as a domicile of choice for Chinese outbound investment.

Maltese companies are taxed at 35% on their chargeable income allowing for deductibility of expenses incurred in the production of the income, including interest on debt financing, and allowing unutilized losses to be carried forward unlimitedly to future years, with the possibility of an effective tax rate of 5% or less, depending whether participation exemption or the Malta tax refund system applies.

Participation Exemption

Malta's participation exemption regime exempts dividends received from participating holdings and gains derived from the disposal of such holdings, provided certain conditions apply. For a holding in a company to qualify as a participating holding, generally conditions must be satisfied, the most common being:

Malta Company must hold at least 10% of the shares of the company; or

Malta Company has a shareholding in the company of at least €1.164m which has been held for an uninterrupted period of not less than 183 days.

The company has an option not to declare said income or gain in the company’s tax return – through the application of a participation exemption. Alternatively, if the Maltese company opts to include its income in its tax return, it will be subject to tax in Malta on such income and gains at the normal corporate tax rate, but its shareholder will be entitled to a 100% refund on distribution of profits derived from such income gains.

Tax Refunds

A key advantage of our tax regime is the full imputation system which completely eliminates the economic double taxation of company profits. This entitles shareholders in receipt of a dividend to be subject to an effective tax rate of 5%. They are entitled a tax credit equal to the tax borne on the profits out of which the dividends are paid. Shareholders of a Maltese Company are generally entitled to a tax refund of 6/7ths of the tax paid by the distributing company out of the profits derived from its foreign income account subject to certain conditions. In the event of distributions from passive interests and royalties the refund is generally of 5/7 with an effective tax rate of 10%. This tax treatment is also available to branches of foreign companies registered in Malta for tax purposes. Maltese tax legislation offers the possibility of additional refunds and double taxation reliefs.

In addition to the above, it is worth considering the following key aspects:

No witholding tax on payments of dividend

No thin capitalization rules or controlled foreign company legislation

Q: What have been the key contributing factors to Malta’s emergence as a leading location for inbound FDI?

A: The country’s human resources are possibly its best asset, as the people of Malta have learned how to adapt to the various situations, developing into a highly-skilled and flexible workforce that is able to learn quickly.

Despite the efficiency and high productivity ratio of the workforce, most of which is also bilingual and English-speaking, the labour cost is still effectively lower of that in other countries. Generally speaking, Malta’s competitors in this regard have significantly higher costs – for example, Maltese wages on average are only around 70 per cent of those in other EU countries to the north.

This means that prospective investors get better value for their money, as it will cost them significantly less to invest in Malta but at the same time they would nevertheless have the assurance of good quality in the products or services being provided.

Investors are also attracted to Malta by its competitive incentive and fiscal regime which includes an attractive tax package for investors.

Additionally, they would also have the benefit of operating from a country that is a full member of the European Union, Eurozone and Schengen Area and which is strategically located between Europe, North Africa and the Middle East, with excellent connections not only by air and sea to the neighbouring countries but also through an exceptional electronic infrastructure.

Q: What sectors currently attract the bulk of FDI entering Malta? How is this changing?

A: Malta has gradually shifted from a low-value-added to a knowledge-based economy with a higher added value. Whilst most of the low-cost production has moved out of the country, Malta managed to remain competitive by diversifying it’s offering and moving up the value chain.

Sectors such as the financial services and the ICT industry, including niche sectors such as call centres and back office support as well as digital gaming, keep going strong and remain very attractive for prospective investors. These sectors can rely on an excellent electronic infrastructure which covers 95 per cent of the territory with a broadband connection and which in terms of quality has been classified as the sixth in the world in a study published by Oxford University in late 2010.

Infrastructure continues to improve, and projects such as SmartCity Malta - a $300 million self-sustained township providing space for the ICT and media sectors based on a similar project in Dubai - shall be providing more space for this growing industry as it gradually comes to life.

The growth in the financial services industry is impressive, registering a yearly increase of about 30 per cent in the past few years despite the international financial crisis. Capital inflows in the financial sector nowadays account for around 60 per cent of the stock of FDI in Malta, evidence of the country’s attractiveness for potential FDI investors.

In the manufacturing industry, we are moving up the value chain and shifting from low-value production to processes which include an element of R&D and innovation or at least an element of high value added in which our skilled workforce can excel.

The aviation industry is also expected to benefit from the launch of a new aviation register, which is seeking to emulate the success of the shipping register – one of the biggest in the world despite Malta’s small size. The island has in these years rediscovered its glory in the maritime industry, with thriving niches such as the cruise liner industry, super-yacht and yachting facilities, ship repair, as well as transhipment and logistics.

Q: How have your efforts to attract Chinese clients expanded since the financial crisis?

A: China was one of the strongest economic performers during the financial crisis, registering good growth despite the worldwide difficulties. This has made it an even more attractive market, and Malta is taking various initiatives in order to expand its client base from the country.

The Government has identified seven key sectors in which Malta is working to become a centre of excellence and a regional hub, namely financial services, ICT, international education services, high-value manufacturing including pharmaceuticals, tourism, health services, and the eco-regional dimension.

If Malta is to achieve its targets, it is important to have a combination of local growth together with foreign direct investment in these sectors. In view of the fact that some of these sectors have also been identified by China for further growth, it is only natural for us to seek increased synergies and areas in which we could complement each other.

We are thus taking a number of initiatives to strengthen the trade and investment relationship between Malta and China. Amongst these, Malta Enterprise has appointed a regional leader for Asia to work from within the market, being permanently based at the Malta Embassy in Beijing. As part of his duties, our regional leader is responsible for coordinating visits by Chinese companies to Malta for fact-finding missions and probable company set-ups, as well as to follow up any concrete interest which is forthcoming from these companies.

Furthermore, following a successful trade mission to Beijing, Shanghai and Ningbo in June last year, we will once again be organising a trade delegation to China, this time to Guangzhou and Hong Kong. A second group of Maltese businessmen will thus have the opportunity to participate in networking sessions and pre-organised one-to-one meetings with a view to expanding their business in China, seek possible partnerships and collaborations, or attract investment to Malta.

We are also assisting the International Investment Association of Shanghai to open up an office in Malta, while we have also facilitated the setting up of the Maltese-Chinese Chamber of Commerce.

Q: Are there any incentives for Chinese investors to invest in Malta?

A: The incentives we offer to Chinese investors are not any different from those we offer to any other investor, irrespective of the location. We have a wide-range of incentives and assistance to encourage investment, such as tax credits on the amounts invested, access to finance including financial support and loan interest subsidies, assistance for training of the workforce, as well as other schemes to encourage R&D, innovation and competitiveness, also through the use of EU funds.

We can also provide premises or factory space at very competitive rates for companies who would like to set up their operations in Malta.

Moreover, Malta’s tax system, coupled with the extensive network of double taxation treaties that currently comprises almost 60 countries, offers significant fiscal efficiency to companies. Amongst others, a full imputation tax system is applicable in Malta, whereby shareholders can claim credit for tax paid by the Maltese company upon distribution of dividends, possibly reducing their tax rate from the maximum rate of 35 per cent to as low as 5 per cent – the lowest in the European Union.

Q: How have trade and investment between Malta and China evolved?

A: Through Chinese investment, a number of projects were carried out in Malta that have made a great contribution to the country and its economy, such as the construction of a 300,000-ton dry dock and a breakwater sheltering the Malta Freeport – one of the Mediterranean’s largest transhipment hubs.

Indeed, Chinese merchant ships are amongst those to make use of the Malta Freeport facilities for transhipment, as Malta acts as a gateway to the huge markets neighbouring it.

Trade between the two countries has greatly benefited as a result and kept increasing in the past years, with imports from China having the greater share of the trade. Malta’s trade deficit with China was over €56 million in the past year. Total imports from China reached a total of €117.8 million in 2010, a marginal increase over the previous year, while exports from Malta to China more than doubled from €27 million in 2009 to €61.2 million in 2010.

A breakdown by category shows that the bulk of imports from China consisted of machinery and mechanical appliances, organic chemicals, electrical machinery, clothing, furniture, bedding and lighting fittings, while Malta’s exports to China were almost exclusively electronic components and to a lesser extent clothing items.

From the investment side, a host of Chinese companies - mostly SMEs - have already taken advantage of the benefits that Malta can offer, aided by the fact that the two countries have held excellent relations throughout the past years, with their relationship developing smoothly and steadily ever since the two countries established diplomatic relations almost 40 years ago.

However, one has to clarify that, due to the small size of the country, what is a large-scale investment for Malta would probably be a medium-scale investment for China.

By stepping up its efforts in China through various initiatives, Malta has generated increased interest and enhanced its reputation in the country, enabling it to benefit from the sudden surge of Chinese outward investment.

The benefits of investing in Malta and using it as a regional hub to tap into nearby markets - such as the excellent quality available at a relatively low cost, the political and economic stability, the easy accessibility to other markets, a great lifestyle with almost all year round sunshine, and several others as already outlined in other replies – speak for themselves, and by increasing the awareness about them Malta has managed to attract more trade and investment from China.

The granting of the Approved Destination Status by the Chinese authorities to Malta almost a decade ago has further enhanced the relationship between the two countries, with Malta becoming the ideal stepping stone for increased trade in the European Union.

This status has also made it easier for Chinese people to travel to Malta for tourism and leisure purposes. The island’s unique combination of culture, history, architecture, entertainment and fine weather almost all year round makes it an attractive destination for tourists from all over the world.

Q: Are there any services you are expanding that would be of interest to Chinese investors?

A: Inspired by Government’s Vision 2015+, the country is seeking to become a centre of excellence and a regional hub in a number of sectors, which therefore present various opportunities as part of the growth process they are going through.

Besides creating a business-friendly environment, the authorities are also encouraging further investment in these sectors by coming up with concepts for public-private partnerships, which often are developed into a clustered environment that not only provides the infrastructure to meet current demand, but also to foster and facilitate further growth in the particular sector.

Examples include the Aviation Park, which has not only provided facilities for Lufthansa Technik and SR Technics but also for other companies providing similar or related services; the Life Sciences Park, which is expected to give a further boost to the healthcare, biotechnology and life sciences industry; and the Corporate Village Malta, which shall provide office space to facilitate further growth in the financial services industry.

Q: What are the products for which there has been increased Chinese interest?

A: With most Chinese people opening up their recipe to foreign food and bevarages in recent years, Malta has also witnessed an increased interest in this sector. Further interest was also expressed in products such as electronics and machinery.

Rather than products, however, most Chinese are interested in services that are offered in Malta, such as international education, health, tourism and financial services.

Amongst others, tourist agencies are interested in including Malta as part of a wider European tour, while educational institutions are looking at degree-level or English language courses which are offered in Malta at a fraction of the cost of those in the UK.

Q: What effect will the double taxation treaty have on business coming from China?

A: Avoiding taxation by two or more countries of the same income, asset or transaction is an important tool in attracting investment. For this purpose, Malta has signed a double taxation agreement with almost 60 countries worldwide, including most of the major European trading nations, and is in the process of negotiating others.

The Maltese tax regime governing double taxation relief includes not only treaty relief but also unilateral relief and the flat rate foreign tax credit, and thereby ensures that income arising from overseas is not subject to double taxation, even if there is no double taxation agreement in existence.

Malta’s tax system and its extensive double tax treaty network means that, with proper planning and structuring, investors can achieve considerable fiscal efficiency using Malta as a base.

Q: What does Malta offer to Chinese investors as a staging post for neighbouring markets?

A: Whilst benefiting from the already existing excellent political and commercial links that Malta has managed to establish with the EuroMed partners, Chinese companies based in Malta would also benefit from the free trade agreements that Malta has with other countries, which besides the EU also include the European Free Trade Association (EFTA) countries, namely Norway, Switzerland, Liechtenstein and Iceland.

"Malta and China have signed a Reciprocal Promotion and Protection of Investments agreement in 2009 "

Forward-thinking Chinese entrepreneurs are becoming increasingly conscious of the advantages of steering away from the more obvious tax jurisdictions and towards less visible but equally advantageous regimes. Finding the right jurisdiction with the help of the right experts to guide you can open up a land of opportunities.

The EMCS International offers a one-stop-shop to foreigners seeking to do business from or within Malta. Services include corporate and tax structuring, personal tax planning including assistance with re-locating to Malta and acquiring property in Malta, ship and aviation registration, back office and accounting, trustee services, assistance with setting up a remote gaming company in Malta and financial services advisory, including the setup of professional investor funds and asset management companies. A team of tax and legal specialists, accountancy and management consultants offer advice and bespoke solutions to an international client base with clients as far afield as Australasia and the Americas.

Why Malta

Malta has growing appeal to the foreigner for various reasons, at the forefront of which is full EU membership and a very advantageous tax regime ideal for international tax planning opportunities, particularly as an exit route for non-European investors investing within Europe due to the combined application of the participation exemption and absence of outbound withholding taxes. Furthermore, Malta and China have signed a Reciprocal Promotion and Protection of Investments agreement in 2009 as well as a new double taxation agreement which further strengthens the very good relationship between the two countries. The new double taxation treaty reduces the withholding tax rate for dividends with respect to holdings of at least 25% to 5% from the previous 10%. Withholding taxes on particular types of royalties has been reduced to 7%.

Remote Gaming in Malta

The remote gaming sector is the most dynamic and the fastest growing gaming sector in Malta and a number of key industry players are based and licensed in Malta, example Betfair and Betsson. The highly regulatory framework aims to provide both a secure on-line environment to players and a competitive edge to remote gaming operators. One may apply for four types of class licences including casino type and skill games, online lotteries, pool and spread betting, P2P, poker networks etc.

Remote/online gaming operators based in Malta can enjoy the following benefits:

Well regulated and stable jurisdiction

Very attractive fiscal regime resulting in an effective tax rate of 5% on profits and no outbound withholding taxes

Efficient and inexpensive licensing process

Well established and regulated financial services institutions

Yacht & Aircraft Registration

Malta adopted a Commercial Yacht Code in 2006 and since then Malta has one of the largest super yacht registrations in the world.

The main advantages, of the Maltese Commercial Yacht Registration system are:

An EU member state, internationally recognised and reputable jurisdiction

No tax levied on any income derived from the use of such Commercial Yacht

VAT Exemption on commercial yachts

Low registration costs

Based on Malta’s success as an international yacht register, Malta recently amended its Aircraft Registration Act, which seeks to create one of the largest aircraft registers in Europe. Furthermore, the Act implemented the Cape Town Convention on International Interests in Mobile Equipment and the Aircraft Protocol thereto (the “Convention”) which facilitates asset-based financing and consequently enhances Malta’s attractiveness as an aviation centre.

Dr Michael Tanti-Dougall is Senior Partner of Tanti-Dougall & Associates, Advocates a multi-disciplinary Law Firm established in Valletta, Malta together with his wife, also a lawyer, Dr Jacqueline Tanti-Dougall. He has been practicing law for the past 20 years having graduated as Doctor of Laws for the University of Malta.

The Law Firm’s legal practice includes company law, financial services, trusts, health & safety, aviation safety & security, competition law, M&A, intellectual property rights, franchising and litigation although where possible, mediation is encouraged as an Alternative Dispute Resolution (ADR) to litigation which benefits clients well especially corporate clients, since it saves much on time and on expenses for a settlement within the shortest time possible which is important and necessary in the business world. Indeed, Dr Tanti-Dougall is Vice Chairman and Member of the Board of Governors of the Malta Mediation Centre.

Tanti-Dougall & Associates, Advocates supports its corporate clients with comprehensive professional advice on Maltese Corporate Tax particularly in connection with investment-related businesses as well as indirect tax advice, including the effective use of the current 58 Double Tax Treaties enjoyed by Malta through corporate structuring especially for international business operations. Tax advice can be provided for companies related to cruise liners or super yachts registration, aviation, remote gaming, M&A, the film industry and with respect to company re-domiciliation to Malta. Assistance is also possible for the setting up of business in Malta or through Malta with a tailor-made corporate and tax structures.

Since the signing of the Double Tax Agreement between China and Malta, numerous Chinese investors have already benefitted from Malta’s attractive tax regime in the many and varied business opportunities which have arisen with Malta’s accession to the European Union. Indeed, Chinese investors are seeking to make use of Malta as a platform for their businesses to enter the European market and reach out for its billions of consumers. In this respect, it is pertinent to emphasise that Dr Michael Tanti-Dougall has been elected as a member of the Executive Committee of the Maltese-Chinese Chamber of Commerce which has been recently set up, inter alia, for the promotion of business and investment opportunities between the two countries.

Dr Tanti-Dougall opines that “Malta is indisputably extremely attractive for foreign investors and companies to carry out their business in particular for its excellent financial services legislative framework and for its advantageous tax benefits for corporate structures including trusts, benefitting from as many as 58 double tax agreement treaties. Every foreign investor in Malta would indeed be able to benefit from a corporate structure that allows him to enjoy a good return on profits whilst at the same time, benefit from lowest taxes possible, normally capped between 0 % to 5 %. For example the film industry in Malta has attracted many productions since the Maltese legislation provides film producers with highly attractive tax benefits which cannot be easily matched elsewhere”.

Notwithstanding the financial ‘tsunami’ that has weakened many an economy worldwide, Dr Tanti-Dougall strongly believes that during this current year especially from the third quarter onwards, there should be an effective increase in Malta for corporate re-structuring with more emphasis on tax benefits and tax planning. Indeed, Malta being a small island state has not been spared from the recession effects; however, in the circumstances, being small has proved to have its advantages and Malta has benefitted from a rather manageable economy which is slowly growing. This growth is attracting foreign investment.

For example, in launching its Green Paper in March 24, 2011, with the objective to gauging a comprehensive understanding of the online gambling market which is rapidly expanding beyond original expectations, the European Union has identified Malta ... despite being the smallest Member State ... as enjoying one of the largest register of online gaming companies mainly due to Malta’s favourable tax regime. It is pertinent to point out that in 2008 online Gross Gaming Revenue (GGR) was deemed to be at 0,68% of the Gross Domestic Product (GDP) of the EU. In Malta, which has indeed become an i-gaming hub, the GGR represented 7,82% of its GDP followed by Latvia at 1,38%, Greece at 1,30% and Cyprus at1,22%. Needless to say, Malta cherishes such registered growth over other EU Member States.

He reiterates “in the prevailing financial situation, it would be only natural that corporate clients would seek more to maximize their cash flow availability by saving on taxes whilst at the same time minimizing their costs to partake on the local and European market with their products or services at incredible low competitive prices. Malta is making such a demand possible and China can benefit immensely from such a scenario to become even more competitive than ever before.”

Dr Tanti-Dougall is co-author of the Malta Chapter in a three volume publication entitled ‘European Competition Law: A Guide to the EC and its Member States’ by Frank Fine, General Editor, published by LexisNexis, an excellent point of reference updated every year by expert lawyers practising in the field of competition, M&A from each EU Member State.

He is director of a financial services company, trusts licensee and member of various international organizations which specialize in particular legal areas like IFTTA, the International Forum for Travel and Tourism Advocates and of MARQUES, the Association of European Trade Mark Owners which incorporates both trade mark owners and professional legal practitioners.

Dr Michael Tanti-Dougall has been described as “hard working with a vision for practical solutions”.

Situated at a strategic intersection between Europe and Africa with a combined size of 316 square kilometers for its main three isles and a population of 413,775 (2011), the tiny island Republic of Malta glistens amidst the waves and tides of the Mediterranean sea.

Relatively unknown to most Chinese, Malta has the very best endowment of the quintessential nature, tamed, tranquil, picturesque; a fabulous historical heritage; and a sophisticated modern financial services industry that the nation can boast of. Out of its active labor force of 350,168 (as at 4th quarter 2010), 5,731 persons (as at 4th quarter 2010) were employed by the financial services industry with an average gross annual salary standing at €46,810 (as of 2010).

After a British colonial rule of 160 years before its independence in 1964, English institutions, culture and language had ingrained in Malta. English, a joint official language with Maltese, is universally spoken and written as well as being the language of education and business. Furthermore, many Maltese are also fluent in Italian, German and French. The Maltese have a very high regard for education and some 60 percent of the local students enter into education at the tertiary level. Therefore one of the nation’s big advantages is the availability of high-caliber, multilingual workers in most essential sectors of its economy. Enjoying an excellent reputation worldwide and attracting international students from afar, the University of Malta is one of the oldest universities in the English-speaking world.

Malta is an independent multiparty parliamentary democracy headed by a parliament-elected President. The head of government is the Prime Minister leading an elected government for five-year terms. Malta is a member of the European Union, the Council of Europe, the United Nations and the British Commonwealth. The Maltese Government has a tradition of encouraging foreign investors to establish operations in Malta and has always adopted policies in favor of an open, free-market economy and direct investment. As a matter of fact, Malta is one of the EU's most open economies with a trading tradition reliant on import and export.

Malta has extensive flight connections with the rest of the world. The national carrier Air Malta operates routes to a number of European and North African destinations, with regular flights. There are also a large number of international airlines flying to and from Malta.

On 1 May 2004 the Central Bank of Malta joined the European System of Central Banks and on 1 January 2008 it adopted the Euro, the European single currency, as the nation’s statutory medium of exchange. This move further facilitated the integration of the Maltese economy with its northern neighbours’. A universal EU-wide currency is much more stable than its previous individual currency backed by a tiny island economy amid speculative volatility. The Central Bank of Malta participates in the preparation and decision-making process of the European Central Bank’s monetary policy.

Like other well-known jurisdictions, Malta has a tax-efficient environment. Businesses set up in Malta reap the benefit from a full imputation system and double taxation treaties with over 40 countries. Malta’s participation exemption regime provides for a 100% relief of dividend and capital gains, provided certain conditions apply. A key advantage of Malta’s tax regime is the full imputation system through which, upon distribution of dividends, tax paid by companies in Malta qualifies for a credit against shareholders’ tax liability generally equal to 6/7ths of the tax paid, as well as the elimination of the economic double taxation of company profits. This tax treatment is also available to branches of foreign companies registered in Malta for tax purposes.

Financial services activities in Malta are supervised by a single regulator, the Malta Financial Services Authority (MFSA), an institution very similar to the UK Financial Services Authority, which was disjoined from the Bank of England to be placed into stewardship of the financial services industry. The MFSA regulates and supervises credit and financial institutions, investment, trust and insurance business and also houses the country's Companies’ Registry. The MFSA issues guidance notes, monitors local and international developments, works with relevant parties on legislative matters, and plays a major role in training. I t has signed a number of bilateral Memoranda of Understanding (MOU) with international regulators of financial services and is also a signatory to specialized multilateral MOUs through organizations such as the International Organization of Securities Commissions and the Committee of European Securities Regulators. The MFSA inked MOUs with China Banking Regulatory Commission and China Securities Regulatory Commission respectively on 2 February and 26 January 2010.

Despite its comparatively low exposure in the international arena, Malta is a highly developed financial centre. Financial services, financial intermediation and related sectors currently account for 13 per cent of its GPD, a figure expected to double in the next decade. It offers excellent possibilities for low-cost financing of investment transact ions and international activities. All domestic and foreign transactions are handled efficiently and reliably by Maltese and foreign banks with state of the art technology.

Banking for Malta’s Future

Malta’s international banking centre has been gaining considerable momentum in establishing itself as a finance hub in the Mediterranean region. Over the past decade or so, the sector has transformed itself from one having four retail banks serving the local population to a reputable international banking centre currently hosting 22 locally licensed banks.

The spread of foreign-owned banks includes subsidiaries whose parental organizations are headquartered in Australia, Austria, Bahrain, Belgium, Germany, Greece, Portugal, Turkey, and the UK. Other banks have major shareholding interests emanating from Cyprus, Finland, Italy, Kuwait, Saudi Arabia and Switzerland, and a branch of a Netherlands-licensed bank also operates in Malta under the European Passport Rights for Credit Institutions Regulations.

This influx, which includes several leading banking groups, has added dynamism to Malta’s thriving financial services industry, and the expectation is that many other banking institutions will follow its lead.

Scope of Activities

As growth continues, so does the range of products and services being offered in and from Malta. These include retail banking, private banking, trust business, investment banking, trade finance, treasury operations and syndicated loans.

Malta joined the European Union in May 2004, and successfully adopted the euro in January 2008. This inspires confidence, and also allows operators easy access to the European markets. At the same time, the island’s strategic location in the center of the Mediterranean makes it a convenient gateway to North African markets, and an ideal base for financial institutions wishing to tap into the ever-increasing wealth being generated in the region.

A Robust Regulatory and Legislative Framework

The MFSA is the country’s single regulator for all banking, investment and insurance businesses. It maintains an aptly high regulatory standard in compliance with the EU legislations and the principle of best practice, whilst in the meantime allowing for the resilience necessary in a modern and dynamic banking environment, without imposing undue bureaucratic burdens on operators.

Closely supervised by the MFSA, Maltese banks remain well capitalized, and have high liquidity ratios , reasonable risk exposure, as well as sound, well diversified portfolios. Their funding is sourced mainly from customer deposits, and their prudent business model has enabled them to emerge largely unscathed from the turmoil of the 2008 global financial crisis, as evidenced by the World Economic Forum’s October 2008 report on global competitiveness, which ranked Malta amongst the top ten countries insofar as soundness of the banking system is concerned about.

An Advantageous Business Domicile

The island has a good source of well educated laborforce and a legion of qualified professionals in law, accounting, taxation, I.T. and other disciplines required by the financial services industry. The workforce possesses good language skills – English is an official language – and a positive work ethic prevails.

Costs are also measurably lower than in other European financial hubs, with salaries averaging one third to one-half of the EU level. Other operating costs are likewise competitive, and excellent office space and housing are available at reasonable rents.

The Maltese fiscal regime has also been one of the main drivers in creating an attractive investment environment. Companies are taxed at a flat rate of 35%, but the Maltese tax regime includes not only treaty relief but also unilateral relief and the flat rate foreign tax credit, which assumes a deemed foreign tax of 25% of the income received in Malta, irrespective of any tax paid abroad. Thus income arising from overseas is not subject to double taxation, even if there is no double taxation agreement in existence.

Another key advantage is the full imputation system that applies to the taxation of dividends. This entitles shareholders to a tax refund of 6/7ths of the tax paid by the distributing company out of profits derived from income arising from outside Malta. The refund is reduced to 2/3rds where the distributing company claims double taxation relief.

Malta’s tax system has been deemed by the European Commission to be compliant with EU non - discrimination principles, and with proper planning and structuring, investors can achieve considerable fiscal efficiency using Malta as a base.

Continued Growth

The Maltese financial services sector is today fast becoming a cornerstone of the economy, broadly accounting for around 13% of the GDP. The sector has been experiencing tremendous growth, and government’s vision is to increase the industry’s contribution to 25% of GDP by 2015. Banking has a central role to play in this ambitious development, and in projecting the island’s well-earned reputation as an international finance centre of excellence.

Fund Management

Malta has developed a sound reputation as a fund domicile, and with a healthy fund management and fund administration sector. Joining the EU in 2004 sparked it all off, and adopting the euro in January 2008 helped further by removing foreign exchange costs for firms dealing with other euro zone members.

Accession to the EU brought the stamp of approval to Malta’s financial regulatory regime, and under the EU’s Undertakings for Collective Investment in Transferable Securities (UCITS) legislation, Malta can market appropriately licensed funds throughout the EU.

The statistics tell the story. There were 401 funds or collective investment schemes (CISs) registered in Malta, whose size is akin to that of Baoshan, an outskirt district of Shanghai, at the end of September 2009, amongst which 288 were hedge funds or professional investor funds (PIFs). The 328 locally based CISs had a net asset value of €6.5 billion at the end of September 2009, according to the MFSA. This was a major advance on the situation in 2006, when there were 145 funds with a net asset value of €4.8 billion; and in 2004 their value was only €1 billion.

In January 2010 the MFSA signed a MOU with China Securities Regulatory Commission to “protect and promote the development of the securities markets by providing a framework for co-operation, increased mutual understanding and the exchange of information.” The MOU puts Malta’s funds industry on the same footing as the major fund domiciles in the rest of the world, particularly in the EU, and will facilitate business for financial institutions between Malta and the world’s fastest-growing, second-largest economy. A similar agreement with the China Banking Regulatory Commission was penned in the ensuing month. Chinese ‘qualified domestic institutional investors’ (outward fund managers) are now able to invest on behalf of Chinese investors into Malta-domiciled investment funds, both PIFs and UCITS funds, thereby opening up the sector to one of the world’s largest pools of capital. The arrangement also makes it possible for Maltese fund managers to reciprocally invest in China under certain conditions.

Fund Managers

Running Malta ’s funds are 8 1 licensed fund managers and 13 fund administrators. Apex Fund Services (Malta), a local fund administrator which is part of this network, has its headquarters in Bermuda and around a dozen offices in other parts of the world. John Bohan, one of Apex’s owners, who is based in Ireland, says that the “surge in demand for regulated products and UCITS funds, coupled with the requirement for a robust banking environment, make Malta a perfect choice as a funds domicile.” He says local laws make it easy to redomicile funds to Malta from other approved jurisdictions, and the growth in the country’s funds industry has created many opportunities for banks and others to get involved in fund management and administration. Bank of Valletta Group (BoV), which owns one of the island’s two main banks, has both a fund management arm, Valletta Fund Management (VFM), and a fund administration subsidiary, Valletta Fund Services (VFS). Both performed well last year under difficult circumstances. “VFM’s funds under management have grown to record levels, albeit with a substantial proportion being represented by the La Vallette Malta Money Fund on which minimal margins are earned,” said BoV group chairman Roderick Chalmers in the company’s latest annual report. “VFS’s portfolio of international business has shown encouraging growth, justifying the separate focus that was the rationale behind the establishment of this new and dedicated business entity, which is playing an important role in Malta’s development as an international financial services centre.”

An Industry Voice

Charles Azzopardi, vice-chairman of the Malta Funds Industry Association (MFIA) and managing director of HSBC Securities Services (Malta), a fund administrator, says the industry is now in its 17th year. “It began just after the necessary legislation, the Investment Services Act, was passed in 1994, after which the two major banks, Mid- Med Bank (now HSBC Bank Malta) and Bank of Valletta set up their respective fund management companies i n 1995/96,” says Mr Azzopardi. “These companies issued funds for the local marketplace, consisting purely of traditional funds and directed towards the retail investor. By December 2003, there were 46 retail funds, with a net asset value of €830 million, and a couple of professional investor funds of minimal values. Joining the EU in May 2004 gave Malta the international dimension it needed.” Mr. Azzopardi says the EU membership enhanced the island’s reputation for financial services, allowed its already sound regulations to be harmonized to EU standards, “inspiring more confidence,” and put Malta on an even keel with other EU jurisdictions because UCITS funds could then be registered in Malta and sold in other EU countries. “Joining the euro zone in 2008 galvanized our position,” he adds.

A Channel of Communication

The MFIA represents fund managers, fund administrators and financial intermediaries selling investment funds. It was set up in 2003 by HSBC Global Asset Management and Valletta Fund Management, and it now has 16 members. “The objective of the MFIA is primarily to act as a channel of communication and to make representations to the Maltese government on matters including legislation and regulation, as well as to the MFSA on regulation that affects the business or professional interest of our members,” says Mr. Azzopardi. “The MFIA also provides education and training for its members, promotes the development of the fund and investment management business in Malta, provides a professional forum for members and acts as its pre-eminent voice. “Despite the global financial crisis and turmoil in 2008, Malta has weathered the storm quite well, as we saw fund promoters continuing to view Malta as an alternative and flourishing jurisdiction to domicile their funds, especially in the alternative investment funds space.”

In value terms, the dramatic climb in assets was only arrested in the final quarter of 2008, with a sudden decline in the value of PIFs. This trend stabilized, however, last year and there is a lot of business in the pipeline that augurs well for this year. “I expect that as the island increases its reach we will also see more fund managers coming here,” says Mr. Azzopardi. “The financial market turbulence is a negative, but it can also be considered a positive for us as fund managers look to move their funds to a more stable and recognized jurisdiction, and Malta can be that place.”

Tourism, the nation’s foremost source of income and the backbone of its economy

The Maltese Islands, consisting of the main island of Malta (area 95sq. mi / 246 sq. km), the adjoining islands of Gozo (26 sq. miles / 67 sq. km) and Comino (1 sq. mile / 2.6 sq. km) and the uninhabited rocky islets of Cominotto, Filfla and Selmunett, lie in the Central Mediterranean at the East end of the Sicilian Channel, 60 miles / 93 km from the southern tip of Sicily and 180 miles / 288 km from the Tunisian coast to the West. The islands extend from NW to SE for a distance of some 27 miles / 44 km, rising to a maximum height of 830 ft / 253 m. The Maltese Islands are the last remains of a land bridge which during the Late Tertiary era and the Glacial periods of the Pleistocene linked Sicily with North Africa and divided the Mediterranean into two.

On the main island, Malta, the land rises in stages from NE to SW. The east is a region of gently rolling hills, never rising above 330 ft / 100 m, with a number of excellent natural harbors wheras the west gives way to a plateau of Tertiary limestones, often broken up by karstic action and reaching its highest points along the west coast which is edged by sheer cliffs that offer little shelter for shipping. Fertile land is found mostly in the larger basins in the eastern half of the island, and it is in these areas that one finds the main concentration of population and where economic activities have developed.

The neighboring island of Gozo is separated from Malta by a channel some 3 miles / 5 km wide, divided in two (the North Comino Channel and the South Comino Channel) by the little island of Comino. Like Malta, Gozo rises gradually toward the SW, though here the limestone hills are lower and the cliffs on the SW coast are correspondingly less formidable. The NE coast, with few indentations, has no natural harbors like those of the main island.

The Maltese Archipelago has a characteristically Mediterranean climate. During the summer months it lies fully within the subtropical belt of high pressure, but in winter this withdraws southward, so that during this period the whole of the Mediterranean may be reached by sub-polar troughs of low pressure. Accordingly summers are hot and dry, while winters are mild but rainy. In July the average temperature is 81°F / 27°C; in January it is still as high as 54°F / 12°C. Frost is unknown on the islands. Most of the annual rainfall of, barely 23.6 in. / 600mm, occurs in November and December; the month of lowest rainfall is July. From April to September the Maltese climate can be classed as arid.

Possessing few indigenous raw materials and no natural resources as well as a very small domestic market, Malta's economic development since the beginning of the 1990s has been based on tourism, accounting for roughly 30% of GDP, and exports of manufactured goods, mainly semiconductors, which account for some 78% of total exports.

Tourist arrivals and foreign exchange earnings derived from tourism have steadily increased since the late 1970s. The introduction of low-cost flights in 2007 was the main contributor to the 10.6% increase in tourist arrivals over 2006. During 2009 the tourism industry faced a difficult external environment, as Malta’s major source markets were severely affected by the global recession. This was reflected in a substantial 8.4% fall in tourist arrivals to around 1.2 million. For 2010, the tourism industry indicates that it has picked up. As of September 2010, inbound tourists registered an increase of 13% when compared to the same period last year and outbound passengers went up by 7% when compared to the same period last year. The cruise liner sector, which experienced 26.6% growth in 2007, saw passenger arrivals decline by 20.9% in 2009.

Information and communications technology (ICT) has become one of the reasons why visitors choose Malta over other destinations. With excellent fixed and wireless networks, keeping connected while in Malta is easy. ICT can also be used to offer more information to tourists planning their holidays.

The ICT industry

Malta is now recognized as a major player in ICT services, not just in the Mediterranean region, but in the whole of the European Union as well. In 2007, Malta was also accepted as a member of the prestigious International Network of e-Communities (INEC), joining the world’s leading ICT locations. The Intelligent Community Forum has also chosen Malta as one of the world’s top 20 ‘smart communities’. The challenge that now lies ahead is in maintaining the momentum, because information and communications technology is in a constant state of flux and Malta must stay ahead of the game.

Malta is now a valid destination for foreign direct investment in the ICT industry. Under the Vertical Strategic Alliance (VSA) programme, the Ministry for Investment, Industry and Information Technology joined up with leading global ICT players to promote far-reaching educational and assistance-to-industry programmes. The Maltese government entered into VSAs with Microsoft Corporation, HP, Oracle, IBM, SAP and ESRI, worlleaders in their fields. Alfonso diIanni, Vice President of Oracle Corporation, said: “It is satisfying to have teamed up with the Maltese government in its journey to be the lighthouse in the Mediterranean, where ICT is concerned. Malta’s strategy and vision are a very good foundation for the country to become the ICT regional centre of excellence.” The estimated overall value of the investment made by the corporations in these VSAs exceeds €100 million. In 2006, 36% of the investment projects brought in by Malta Enterprise were in the field of ICT, including the agreement with Tecom Investments for the setting up of the US $ 300 million SmartCity project, which will generate at least 5,600 jobs and serve as the regional ICT services hub, transforming Malta into a global ICT leader.

ICT education

Huge investments were made in all state schools, to ensure that children from every background are introduced to the use of computers as early in their lives as possible. More than 6,800 ECDL programmes have been provided over three years. Interest in ICT educational programmes has grown enormously. The University of Malta and MCAST are both attracting large numbers of students to these training courses. The my Potential programme gives extensive rebates on specialised ICT training courses.

Vision for future

By 2011 Malta’s broadband network will become as important as, if not more so than, its road network. Malta will forge a coalition with the telecoms providers, the Building Industry Consultative Council, the infrastructure authorities and the regulators to upgrade their networks to ubiquitous high-speed broadband serving all households. These networks should be capable of doubling their speed every 12 to 18 months. Broadband is a major economic driver, so they will take it over infrastructure like FTTU into homes wherever they happen to be. The government will bring together the players, using tax to promote and accelerate investment, and fuelling the demand for more services.